"Economic policy coordination in the EU: economic & political rationales."

Abstract

Economic and monetary union (EMU) is, undoubtedly, a unique and bold experiment. Although the introduction of the euro went well, the economic management of the EU as a whole, and the euro area in particular, has been subject to growing criticism (see, for example, Pisani-Ferry, 2002). Today, the EU has to confront sluggish growth, persistent unemployment and an apparent inability to deal with weaknesses in the supply-side of the economy. The optimism surrounding the launch of the euro just four years ago has been replaced by a pervasive feeling of gloom. Rather than looking with envy at Ireland, many are now looking with trepidation at what has happened in Japan since 1990. What is less clear, however, is whether the difficulties now apparent are the result of policy mistakes, flaws in the architecture of the EMU policy system, or the impact of longer-run changes that have been inadequately analysed and dealt with. A crucial question is whether the combination of a monetary policy set by an independent, supranational central bank and fiscal (and other) policies controlled by national governments is conducive to both price stability and economic growth. Since the inception of the euro in 1999 and even during the period of convergence that preceded it, there has been a steady stream of criticism about the EU's machinery for economic policy coordination (Buiter et al., 1993; Boyer, 2002).